Financial Freedom Classroom

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Investing is for everyone

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Image courtesy of Stuart Miles at freedigitalphotos.net
Image courtesy of Stuart Miles at freedigitalphotos.net

How do you teach your children or even yourself to be financially prepared for life?  Can you count on social security or pensions to carry you through your golden years?  Unfortunately, no one has a crystal ball to see into the future, but historically speaking there have only been decreases in the amount of support from these sources.  So how do you ensure a secure financial future?  Make your money work for you by investing.

It does not matter if it is individual stocks, mutual funds, options, REITs, ETFs, IRA, ROTH, 401k, TSP, etc.  Each person should have a portion of their portfolio invested in the stock market and discover the amazing effects of compound interest.  At today’s interest rates at the bank with money markets hovering at 1%, it is an impossibility to get your money to grow.

If you aren’t investing yet, get curious, start learning about the stock market, and teach your children to ensure both your futures.  Of course, make sure you are debt free except for your home loan before you start investing.  Then learn all you can and reap the rewards!

Click like if you are currently investing in the stock market.

Is index investing right for you?

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Image courtesy of Sailom at freedigitalphotos.net
Image courtesy of Sailom at freedigitalphotos.net

When investing in the stock market there is always risk.  There is a way to spread that risk over many stocks (portfolio) instead of just a few companies.  You can invest in an index.

An index is a statistical measure of the changes in a portfolio of stocks.  Some examples of indices are the S&P 500 (SPX), Russell 2000 (RUT), and NASDAQ Composite (NDX).  These indices represent a portfolio (a group) of stocks.  Unfortunately you cannot buy the index itself but you can invest in an Exchange Traded Fund (ETF) that represents the index.  The ETF for the  S&P 500 is SPY, Russell 2000 is IWM, the Dow Jones Industrial Average is DIA and the NASDAQ is QQQ

The benefit to this type of investing as opposed to individual stocks is that the risk is lower because you have a portfolio of a group of stocks.  For instance the S&P 500 is a group of 500 mid-cap stocks and the Russell 2000 is a group of 2000 small cap stocks.  It is instant diversification across a whole grouping of stocks.

Which would you rather invest in and why?  Individual stocks or an index?  Please comment.

How much life are you planning for?

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Image9 courtesy of Stuart Miles at freedigitalphotos.net
Image9 courtesy of Stuart Miles at freedigitalphotos.net

Hopefully retirement comes to those who want it. But are you ready for it? According to the Social Security website a man and woman who reach 65 today can expect to live on average until 84.3 and 86.6 years respectively.

Check out the website to calculate your own specific life expectancy using the life expectancy calculator. This is an important number to ensure there are sufficient funds to help you live your life comfortably. Start planning when you would like to retire and deduct your life expectancy age. Then you know how many years to plan for.

Carefully project your income from all potential sources, like social security, pensions, and 401K plans etc. Also hopefully there are some other assets in your portfolio, including some sort of real estate, business or stock holdings from which you can drawn on if needed.

After this analysis, are you ready? Or do you have more planning to do? Please comment.